By 24 January, 2011 0 Comments Read More →

Shareholders’ Dispute over the Proposed Merger of VimpelCom and Wind

A major CIS-related telecom arbitration may be initiated soon. Shareholders of Vimplecom, a major Russian mobile phone operator, dispute the proposed merger of VimpelCom and WIND TELECOM S.p.A., which controls a leading Italian telecom provider.

If the deal is approved at the general meeting of shareholders, the venture will be the world’s sixth largest mobile telecommunications carrier with over 173 million mobile subscribers. Alfa Group’s telecoms arm Altima initiated the joint venture agreement while Telenor, a Norwegian telecom company opposes the deal. The legal disagreement is whether Telenor, a Norwegian shareholder of Vimpelcom can exercise its pre-emption rights to protects its share from dilution as a result of the proposed merger.

Until this January, the agreement with WIND was considered an unrelated M&A transaction. Article 5.5 of the VimpelCom shareholders agreement provides for pre-emption rights which can be triggered by minority shareholders such as Telenor. However, these rights cannot be triggered in case of a related M&A Transaction, which is defined by the shareholder agreement as follows:

any M&A Transaction in which a Shareholder (or any of its Affiliates, shareholders, principals, officers or directors) has any direct or indirect equity interest (other than equity interests with a fair market value less than US$25 million and that represent less than 5% of the issued and outstanding equity interests of the counterparty or its Affiliates) in any counterparty, a Controlling Person of the counterparty or a Controlled Affiliate of the counterparty in such M&A Transaction.

Earlier this month Altimo informed Telenor that the transaction with Wind should be treated as a related transaction because one of Altimo’s shareholders has a stake in Wind. Gleb Fetisov, an indirect minority shareholder of Altimo, had acquired 0.7% of Wind Telecom’s 51.7% subsidiary Orascom Telecom Holding S.A.E. Telenor insists on its pre-emption rights and argued that the Altimo acted in bad faith.

Telenor explained that it is going to oppose this dilution:

We see this as an obvious deception that violates the VimpelCom shareholders agreement. It is an artificial construct aimed at depriving Telenor of its pre-emptive rights and we will defend our rights in order to protect Telenor’s and the VimpelCom minority shareholders’ investment in VimpelCom.

If Telenor lawyers are creative enough, they may challenge the proposed agreement in Russian courts.  In 2009, the Russian Commercial Procedure Code has been amended and now Russian commercial courts have exclusive jurisdiction over shareholder disputes. However, the dispute is likely to be not about dilution as such but about transfer of control over Vympelcom to foreign investors.

Altima is already in the midst of another shareholder dispute in Russian courts. In that dispute, Telecominvest, controlled by Russian billionaire Alisher Usmanov, tries to invalidate its Altimo’s joint venture agreement related to shares of Megafon, one of the three major mobile networks in Russia. Telecominvest relies on the Russian law on foreign investment, which prohibits foreign investors, such as TeliaSonera, from controlling strategic Russian enterprises. The court agreed with Telecominvest’s arguments last year. TeliaSonera and Altimo now appeal the judgement.

Telenor may also decide to initiate arbitration to protect its share from dilution. The Vimpelcom shareholder agreement provides for an arbitration clause which allow resolution of disputes by a neutral panel of arbitrators. If Telenor decides to proceed with arbitration, it will be conducted under UNCITRAL Arbitration Rules in London and will be governed by New York law.

Yaraslau Kryvoi

About the Author:

Professor Yarik Kryvoi, is the founder and co-editor of the CIS Arbitration Forum. He is the Senior Fellow in International Economic Law and Director of the Investment Treaty Forum at the British Institute of International and Comparative Law (BIICL). He holds law degrees from Harvard, Moscow and St Petersburg. Before moving to academia, he practiced law with Freshfields Bruckhaus Deringer, Morgan Lewis & Bockius and Baker & McKenzie in England, the United States and Russia. See full profile at

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